Collected Wisdom

Crown (CWN)

Crown looks set to be the winner of the long-running battle with Echo Entertainment, after the New South Wales government announced last Friday that the group’s proposal to build a VIP-only gaming venue at Barangaroo in Sydney will move to the third and final stage. Echo’s proposal for further developments at its Star casino, on the other hand, will not proceed to the next stage.

The newsletters like Crown because of its geographical diversification and resilient earnings, and rate it a buy at current levels.

Working in Crown’s favour are the near monopolies it holds at its Perth and Melbourne casinos, which account for about 70% of the group’s valuation. The casino license for Melbourne expires in 2033, while Burswood’s expires in 2060.

On another positive note, the investment press sees increased demand for VIP gaming, which has grown 21% on an annual basis over the past four years, according to one source. The market for VIP gaming is expected to increase further in the coming years, and Crown is in the perfect position to profit.

The newsletters say continued reinvestment in domestic operations ensures large numbers of visitors, both VIP and regular players. Crown pumped $1.8 billion into its facilities between 2008 and 2012 and is expected to follow this up with $1.1 billion over the coming three years. Analysts say this is a good strategy and will ensure continued traffic to its facilities.

Outside of Australia, Crowns Macau operation has staged a dramatic turnaround since the 2010 lows, although has shown some weakness in recent times. Still, the investment press predicts decent earnings growth in the division will continue.

Alumina (AWC)

Alumina’s major producing partner, Alcoa, kicked off US earnings season on a bit of a sour note, positing a second quarter loss of $US119 million ($A131 million).

Despite the bad news, shares in Alumina rose 3% as investors latched onto Alcoa’s forecast of 7% growth in global aluminium demand this year, on the back of a 10% increase from aerospace.

The newsletters say there’s hope for Alumina yet, and rate it a spec buy.

Commenting on Alcoa’s results, Alumina chief executive John Bevan said while it had been a difficult quarter for aluminium prices, spot alumina prices remained relatively stable.

The newsletters say the falling dollar will be of benefit to Alumina, and Bevan mirrored this in this week’s statement to the market, saying: “The recent decline in the Australian dollar and Brazilian Real is a positive development and, if sustained, will deliver financial benefits through lower production costs”.

Alumina also said it received distributions of US$4 million from Alcoa World Alumina and Chemicals (AWAC) during the quarter, and that on July 1 it received a fully-franked dividend of US$25 million, bringing the total received during 2013 to US$54 million.

The investment press is, in part, concerned over the outlook for aluminium, with excess supply putting downward pressure on prices. But the lower dollar could deliver significant benefits for Alumina. On that basis, the investment press rates Alumina a spec buy.

IOOF (IFL)

The hunt for yield continues, and has the newsletters eyeing IOOF. This mid-tier wealth manager has a solid outlook for earnings growth and based on one source’s expectations of a 45.9c per share dividend for the full year, delivers a 6% yield at current prices. Not stellar by any means, but solid, and with potential. For this reason, the investment press rates it a hold.

The acquisition of DKN Financial in 2011 has already delivered synergies that are of benefit to the company’s earnings base, the newsletters say, while inflows continue to impress. The most recent acquisition, Plan B Group Holdings, is also delivering further synergies, IOOF says.

Now to the numbers. The Flagship platforms saw record net inflows of $189 million in the March quarter, while funds under management, administration and supervision (FUMAS) gained 4% in the quarter, to $121 billion.

These increases as well as the strong inflows add up to solid earnings growth potential over the medium term, the newsletters say.

Another reason to keep a close eye on IOOF is the expectation of consolidation in the wealth management industry. Our own Tom Elliott previously pointed to IOOF as a target in this space (see Is this the end of the Sundance saga?), saying that the big banks could look to move into the wealth management space in the near term as a growth option. IOOF is looking pretty attractive as a hold right now.

Amcor (AMC)

Packaging company Amcor’s continued expansion into China has caught the newsletters’ attention. Amcor’s acquisition of the flexible packaging business of China’s Jiangsu Shenda Group  for RMB350 million ($A62 million), is part of an ongoing strategy to reinvest cash flow from developed markets into growing emerging markets, like China. This one’s a hold, the newsletters say.

The investment press says the acquired business is a good fit with its existing operations in the region, allowing for cost synergies, shared overheads, production optimisation and operating improvements.

Meanwhile Amcor was quick to point out that the acquisition “establishes Amcor as the market leader in Eastern China, a region that represents approximately 40% of China’s GDP”.

As part of its strategy to dispose of non-core assets, Amcor also announced the sale of its Fairfield property to Alpha Partners for $120 million, that will come in over the next four years.

Amcor’s advantages over its competitors include financial capacity, product diversification and strong relationships with major multinationals, the investment press says. It has a strong brand and is well positioned for an improvement in the economic climate.

Indeed, the newsletters say by expanding its geographic diversification, Amcor is giving itself further competitive advantage against its peers.

It’s exposure to defensive sectors, including food and heathcare, is another point in its favour. And with 56% of earnings coming from North America and Europe, the newsletters say the falling dollar will be a big help.

Whitehaven Coal (WHC)

Whitehaven Coal has at last received approval for its controversial Maules Creek open cut mine. The approval comes after three long years of delays, and was welcomed by analysts, who say it removes uncertainty that had plagued the company in recent times.

The newsletters like the outlook for Whitehaven given this news, despite uncertainty over the coal price, and rate it a hold. 

The approval is for 13 million tonnes of coal to be produced per annum, and the mine is expected to deliver significant benefits to the company’s bottom line, once in production. First coal from the mine is expected in the FY14 December quarter.

Regarding the coal price, some analysts say the project will still be sustainable at low coal prices (though how low is another question). The falling dollar will also have a positive impact, they say, and should help to alleviate some of the pain caused by the falling coal price.

Meanwhile, Nathan Tinkler’s departure has unsurprisingly been seen in a positive light and eases some of the uncertainty that has haunted Whitehaven in recent times.

One source is still concerned that short-term risks - funding and the outlook for coal - will put downward pressure on the share price, but sees better potential over the long term. Meanwhile, expectations that Whitehaven will start paying a dividend of 5.1c in FY14 will be welcomed by investors.

Watching the Directors

A host of Newcrest directors went on a spending spree last week, nabbing a combined 69,000 od the embattled miner’s shares for a total price of $674,080. Donald Mercer paid $9.41 a share, Richard Knight $9.87, Philip Aiken $9.70, John Menzies Spark $9.88, Vince Gauci $9.60 and Gregory Robinson $9.83, while Richard Lee went back for more after originally paying $10.00 a share, topping up his holding again at $9.65 a share.

Also in the buying mood last week was Panaust’s Gary Stafford, who forked out $553,180 for 300,000 of the company’s shares in on-market trades.
Meanwhile, on the selling side, BC Iron’s Michael Young netted himself $1,046,400 after offloading 300,000 shares “to fund taxation and other personal obligations.”